RICHMOND, Va., Apr 15, 2010 (BUSINESS WIRE) --Philip Morris USA (PM USA) today made its full annual Master Settlement Agreement (MSA) payment of approximately $3.6 billion that will be distributed to participating states. This amount includes payment of funds that PM USA disputes it owes as a result of the 2007 Non-Participating Manufacturer (NPM) Adjustment.
"As in prior years, PM USA has demonstrated its commitment to working in good faith to resolve the NPM Adjustment dispute by paying the disputed amount to the states, even though it had the right not to pay as provided in the MSA," said Denise Keane, Altria Group, Inc. executive vice president and general counsel, speaking on behalf of PM USA. "We continue working towards a resolution of the NPM Adjustment dispute for 2007 and prior years and look forward to doing so, either by settlement or through the arbitration process laid out in the Master Settlement Agreement," said Keane.
Since 1997, PM USA has paid more than $51 billion to the states (MSA and Previously Settled States combined), which includes payment of disputed amounts for the 2003-2007 NPM Adjustments that PM USA was entitled to withhold or pay into a disputed payments account under the MSA.
The NPM Adjustment Proceedings Background
The Master Settlement Agreement is a contract between Participating Manufacturers and the Settling States that establishes certain rights and obligations for each of the parties.
The amount each Original Participating Manufacturer pays each year under the agreement is determined by a complex formula. One component of that formula is the Non-Participating Manufacturer adjustment, which is potentially available in the event that all of the Participating Manufacturers in the aggregate lose more than two percentage points of market share compared to 1997.
For the years 2003-2006, an economic consulting firm appointed under the Master Settlement Agreement has rendered its final and non-appealable decision that the disadvantages experienced as a result of the MSA were a "significant factor contributing to" the market share loss of the Participating Manufacturers for 2003-2006. For 2007, the Participating Manufacturers and the States have agreed that the States will not contest that the disadvantages of the MSA were a significant factor contributing to the Market Share Loss for 2007. Thus, no significant factor determination will be necessary with respect to the Participating Manufacturer's collective loss of market share for 2007. States that prove they have diligently enforced their qualifying escrow statutes during all of a particular year will be able to avoid any application of the Adjustment to their payments for that year.
Arbitration Agreement for 2003
PM USA and approximately 25 other Participating Manufacturers have entered into an arbitration agreement with 45 MSA States concerning the 2003 NPM Adjustment, including the States' claims of diligent enforcement for 2003. The selection of the arbitration panel for the 2003 NPM Adjustment is currently underway.
Proceedings to determine state diligent enforcement claims for 2004-2007 have not yet been scheduled.
The availability and precise amount of any NPM Adjustment for 2003-2007 will not be finally determined until 2011 or thereafter.
SOURCE: Philip Morris USA